Nearly half of all banks are looking to buy majority stakes in fintechs to fend off the threat from Big Tech companies muscling into the payments arena, according to an Economist Impact report.
The study, which surveyed 300 banks on behalf of core banking platform Temenos, found that 40% of banks see tech giants as their biggest competitors in the next five years.
The influence and threat of technology companies such as Google and Microsoft have increased sharply in the last three years. The likes of Apple Pay and PayPal have gained significant market share as Big Tech blurs the traditional lines that have separated banking and payments from commercial activities.
Increasingly, consumer preferences for one-stop shop super apps and dissatisfaction with the speed and cost of bank transfers are tilting the balance in favour of Big tech companies entering the payments market.
As a result, nearly half of all banks surveyed by the EIU are looking to acquire majority stakes in fintech to consolidate their market offering and create online payments services capable of rivalling large incumbent technology giants.
Mick Fennell, business line director at Temenos Payments, says: “The new battleground for banks is being fought over the future of the payments industry. The next generation is demanding a new level of sophistication when it comes to instant payments. Banks that want to thrive over the next decade need to be able to incorporate an offering that is instant, seamless and secure so they continue to operate as everyday payment providers to their customers and keep up to date with the expectations being set by the global technology giants.”
Alarmed by the incursions onto their turf, banks have been pressing financial regulators to reign in the most egregious activities off Big Tech companies and increase oversight using the mantra ‘same business, same rules’.
A senior board member at the Bank for International Settlements in February called for a co-ordinated regulatory response to restrict the power of Big tech firms like Amazon, Apple and Google, arguing that the current rules are “not fit for purpose”.
BIS general manager Augustus Carsens argues that Big Tech mastery of user data coupled with their size and customer reach could trigger rapid change in the financial services industry, leaving established banks at a competitive disadvantage.
“A regulatory re-think is warranted, and it is high time to consider tangible options for action,” he said.
In the US, the Consumer Financial Protection Bureau yesterday published a proposed rule that would see non-bank financial companies that handle more than five million transactions per year face the same rules as large banks and credit unions.
The rule would cover around 17 companies, most notably Google, Apple, PayPal and CashApp operator Block. These firms would have to adhere to applicable funds transfer, privacy, and other consumer protection laws.
